Last year was a difficult one for growth in the Irish Financial Services. Measuring
that growth was also difficult. While GDP increased by 6.9 per cent, this
was largely attributable to very strong output growth in the mainly foreignowned,
less labour intensive sectors where the returns to production largely
accrue to non-residents. The GNP measure, which relates more directly to
the domestic sector, recorded an increase of just 0.1 per cent last year, the
lowest growth rate of this variable since the mid-1980s.
As the IMF point out, the substantial contribution of multinationals to Irish
output, and associated profits, create significant differences between
measures of output and income. In 2002, GDP was boosted by unusually
strong multinational profits which had limited implications for the rest of
the economy. On the other hand, the very low increase recorded in GNP
may exaggerate the slowdown in activity because the unusually sharp drop
in profits earned by Irish firms abroad was driven in part by some specific
factors relating to a limited number of firms.
The poor global economic environment was the main factor weighing on
economic trends in Ireland last year, with weak demand growth in all major
regions having a detrimental effect on Irish exports. Domestic demand was
also relatively sluggish last year, mainly reflecting a slowdown in growth in
personal consumption. This, in turn, was due to more moderate growth in
disposable incomes and concerns about employment prospects, together
with increased uncertainty. The slower growth was associated with further
pressure on the public finances. The labour market, however, remained
relatively resilient, with only a modest rise in the unemployment rate,
though private sector employment did not grow last year.
At Budget time, it was envisaged that demand conditions in Ireland would
improve in the second half of this year in line with the projected recovery
in the global economy over this period. However, the prospects for 2003
have diminished, despite the relatively rapid resolution of the conflict in
Iraq. Moreover, the exchange rate in trade-weighted terms is about 8 per
cent higher over the period 1 January to end July 2003 compared to the
same period in 2002. As a result, competitiveness constraints may further
limit the prospect of an export-led recovery in the second half of this year.
that growth was also difficult. While GDP increased by 6.9 per cent, this
was largely attributable to very strong output growth in the mainly foreignowned,
less labour intensive sectors where the returns to production largely
accrue to non-residents. The GNP measure, which relates more directly to
the domestic sector, recorded an increase of just 0.1 per cent last year, the
lowest growth rate of this variable since the mid-1980s.
As the IMF point out, the substantial contribution of multinationals to Irish
output, and associated profits, create significant differences between
measures of output and income. In 2002, GDP was boosted by unusually
strong multinational profits which had limited implications for the rest of
the economy. On the other hand, the very low increase recorded in GNP
may exaggerate the slowdown in activity because the unusually sharp drop
in profits earned by Irish firms abroad was driven in part by some specific
factors relating to a limited number of firms.
The poor global economic environment was the main factor weighing on
economic trends in Ireland last year, with weak demand growth in all major
regions having a detrimental effect on Irish exports. Domestic demand was
also relatively sluggish last year, mainly reflecting a slowdown in growth in
personal consumption. This, in turn, was due to more moderate growth in
disposable incomes and concerns about employment prospects, together
with increased uncertainty. The slower growth was associated with further
pressure on the public finances. The labour market, however, remained
relatively resilient, with only a modest rise in the unemployment rate,
though private sector employment did not grow last year.
At Budget time, it was envisaged that demand conditions in Ireland would
improve in the second half of this year in line with the projected recovery
in the global economy over this period. However, the prospects for 2003
have diminished, despite the relatively rapid resolution of the conflict in
Iraq. Moreover, the exchange rate in trade-weighted terms is about 8 per
cent higher over the period 1 January to end July 2003 compared to the
same period in 2002. As a result, competitiveness constraints may further
limit the prospect of an export-led recovery in the second half of this year.
